Flagstone Reinsurance Holdings, SA returned to profitability with first-quarter net income of $39.2 million, compared to a net loss of $161.2 million in the same period of last year.Net operating income for the first quarter of 2012 was $27.8 million, or 38 cents a share, which beat analysts’ estimates of 25 cents. That’s compared to the same period of 2011 where the reinsurance company had an operating loss of $148.2 million, or $2.15 loss per share.The difference in results is due to the lack of significant loss events in the first quarter of 2012 compared to the same period in 2011 during which Flagstone suffered great losses connected to the Australian floods, cyclone Yasi, the New Zealand earthquake of February 2012 and the earthquake and tsunami in Japan.FlagstoneRe has been working to reduce its financial assets this year, selling its stake in Island Heritage to BF&M and its Lloyd’s reportable segments. The Island Heritage transaction was complete on April 5, 2012 and the Lloyd’s transaction is expected to be completed before the end of the second quarter of this year.Flagstone says the offloading of these operations was part of a strategic business realignment to address changing business conditions, refocus the company’s underwriting strategy on its property catastrophe reinsurance business and eliminate operations that absorb capital and produce lower returns.“The company’s goal was to free up capital for its core business, substantially reducing risk while retaining acceptable ROE levels, to continue to lower costs and to return to profitability,” said David Brown, Flagstone’s chief executive officer. “I am pleased to say that we achieved these goals in the first quarter, and have started 2012 with a return to profitability, despite the ongoing challenging environment in the industry.“Flagstone’s improved performance this quarter reflects the benefits of improving rates in its core business, which partially offset the reduction in income as the company pares back its risk levels,” he added. “It also begins to demonstrate the benefits of our expense-saving initiatives, as well as the avoidance of significant exposure to first quarter 2012 loss events.”As Flagstone continues to decrease operating leverage and lower overall risk, the company wrote much less business last year with gross written premiums of $170.2 million, a 51.7 percent decrease over the same period of 2011.For the first quarter, Flagstone produced a loss ratio of 58.4 percent and a combined ratio of 97.5 percent. This resulted in an increase in diluted book value per share of 5.1 percent during the first quarter.The company reported a first quarter 2012 basic book value per share of $11.62 and diluted book value per share of $11.42, up 4.1 percent and 5.1 percent, respectively, for the quarter.